About this Author

College chemistry, 1983

The 2002 Model

After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases.
To contact Derek email him directly: derekb.lowe@gmail.com
Twitter: Dereklowe

May 1, 2014

Another Whack at the Cost of Drugs Issue

Posted by Derek

I wanted to highlight this post by Wavefunction on drug pricing. He's addressing the peole who want to know how come a drug with $X of ingredients in it can sell for some multiple of that price, and I'm glad he's making the effort. That's a tough crowd to convince (I've taken several swings at the same topic myself). He emphasizes the difference between the cost of manufacturing something versus the cost of discovering it, which is exactly right, but the people arguing about this issue will usually dispute any realistic estimate of those discovery costs as well. But it's a point that has to be made. It's not that there's no way that a drug could ever be priced too high. It's just that they can also be priced too low.

Gillead is being a bit too greedy on this one. There's more to the legal drug trade than just making money, and helping human health at a reasonable cost is one obligation if you are going to be in this space.

@3: What about Gilead's already-stated pricing of $84,000/treatment-course in the US vs. $900 in Egypt?

Recall that Gilead paid the unheard of price of ~$11 billion to acquire Pharmasset/Sovadi. http://www.businessweek.com/ap/financialnews/D9R58SUO2.htm Seemed absolutely nuts...until one factored in the current cost of HCV care, and how much Solvadi, even priced as it is, lowers the total cost of care (by ~50%), with much better outcomes as well.

Now, I strongly suspect that nowhere near $11B was spent on all the research that never turned into marketed drugs by either Gilead or Pharmasset. Rather, @1, I think Gilead did a very careful calculation of how much they might sell Solvadi for, over how many patients, compared to how much they would have to pay (an 89% premium --- an audacious bid unlikely to be matched) to ensure that Gilead, and not some other company, would be the one to acquire Pharmasset.

Note that I'm not trying to be a shill for Gilead. Rather, I don't think I'm saying anything profound or new here; just reiterating the facts.

But this is the first I've heard of it, and that every single article on Sovaldi and every single public utterance by Gilead doesn't have that fact attached to it is a failure of PR on Gilead's part, I feel.

" helping human health at a reasonable cost is one obligation if you are going to be in this space"

Sorry, but it's just not. Drug companies have a legal responsibility to maximize value for shareholders. Note, this does not give companies license to do so illegally. If making a profit helps people, great, but GILD is under no more legal obligation to improve the lot of humanity than is MO.

In 1909 the anti-syphilis Compound 606 emerged from the laboratory of Paul Ehrlich at the Hoechst Dye Works, the result of several years of investigation into the anti-spirochete activity of organoarsenic compounds. After much technology development and a clinical trial, reports of the drug's efficacy in treating syphilis became headline news in the world press. The long-wished-for cure to this dreaded disease was now at hand.

The drug was called salvarsan, and those suffering from syphilis tried every possible trick to secure ampoules of this miracle drug. Pilfering by factory workers was such a problem that the plant manager had no alternative but to personally count each vial at the end of the day and lock them in his steel safe until they could be distributed by doctors to the sick, many of whom impatiently waited at the plant gates for their chance to get this wonder drug. Letters from kings, popes, the rich and the powerful begged the company for access to this new drug on behalf of this or that patient.

Within a couple of years, reports appeared claiming that salvarsan was not really that effective, that it was far more poisonous than had been stated, and the price of 10 marks per ampoule was much too high. In 1912 a Swiss professor criticized the price of salvarsan. He had totaled up the costs for a kilo of arsenious acid and a kilo of benzene as if the two substances were simply thrown together and salvarsan had been distilled from a Hoechst retort. No mention was made of R&D costs, the tricky nature of salvarsan's industrial-scale preparation or manufacturing costs.

Thus began the long-running love-hate relationship between the general public and the pharmaceutical industry which continues to this day.

#2, #7: Why can't it be both? I am sure the people who founded Merck or Vertex or Gilead had both goals in mind: to generate profits and to aid human health at an affordable cost. I get a little impatient with the argument that it has to be one or the other, although I can see why today's Big Pharma makes it much easier for people to make that argument.

Check out this list of drugs in the pipeline for HCV (http://www.hepmag.com/drug_list_hepatitisc.shtml) - it's no wonder Gilead wants to price high up front, because within 12 months, competition will be driving what they can charge down, fast.

It will take about 200,000 patients to pay off the $11B acquisition tab alone... save your pity for the later arrivals, which may have trouble paying off their R&D costs if the price falls too fast.

@11, yes that article provides a counterpoint in the form of a huge pile of bs anecdotes. One of the funniest is the accusation that American spending on drugs has increased 11% since 2007! OMG, that's outrageous! Of course, read back a few paragraphs, and cleverly hidden within the drivel is the fact that the CPI has risen 12% within the same time period.

There is an ethical dilemma here. Business practice sets prices at whatever demand dictates. The vendor tries to get as much from the buyer as the market will allow. However, for a life-saving treatment, this practice can be "cruel". Offering someones life back, in exchange for all of their property and perhaps future security. Perhaps a more ethical deal, other than to have the government step in, would be to set the price as a percentage of documented family income/wealth.

There is an ethical dilemma here. Business practice sets prices at whatever demand dictates. The vendor tries to get as much from the buyer as the market will allow. However, for a life-saving treatment, this practice can be "cruel". Offering someones life back, in exchange for all of their property and perhaps future security. Perhaps a more ethical deal, other than to have the government step in, would be to set the price as a percentage of documented family income/wealth.

It's a tricky issue because there are a lot of external costs the market doesn't capture. The death or disability of a patient who can't afford a drug has a cost to the economy as a whole, but not to the company's bottom line.